No matter the size of the business, whether – medium, small, or large, they always require an additional flow of cash to mitigate their regular business requirements. The major purpose of availing a loan differs based on whether you require it to start, function (run) or grow your business. The amount required for funding the business depends upon the business type. However, before this, ensure to find answers to important questions – Is your brand capital–intensive? And at what development stage is your company – maturity, growth, or inception?
All the enterprises do not work in the same fashion. Thus, banks or financial institutions require to offer different kinds of business loans to address distinct business scenarios. Read on to know 10 distinct kinds of business financing options that you may choose from. Note that such financing options are available by most lenders, including Lendingkart business loan and Tata Capital business loan.
One of India’s common business loan types is a term loan. As per this loan, the loan proceeds disbursed depends upon the business credit history. Usually, the proceeds for a term loan may be anywhere from 1 to 5 years. When you place an application for such a loan, you require mentioning the usage purpose. The most efficient use of a term loan is essentially covering up your capital expenses.
A start-up loan, as the name suggests, is a suitable loan for entrepreneurs aspiring to start a new business venture. Such applicants do not hold a good credit history as their business lacks the business vintage. Thus, to evaluate an individual’s eligibility for a business loan, lenders must factor in your personal credit profile besides the company’s. To determine the repayment tenure, loan proceeds and applicable Rate of interest on business loan, lenders factor in your current turnover figures and other crucial financials. Before you apply for the loan, the applicant should establish a business. Business existence proof and registration must be submitted at the application time.
Working capital loan
Businesses use working capital loans basically to overcome any type of financial mismatch and mitigate the regular business needs. The end usage of this kind of business loan can be for paying salaries, cash flow, enhancing inventory, buying raw materials, investing in equipment/machinery etc. A loan is advantageous when any sudden need for finances crops up.
Retailers, traders, manufacturers, and various other entities involved in export and import can get a working capital loan. The repayment tenure for a working capital loan may be up to 12 months. Additionally, it is a collateral-free credit option, so borrowers don’t require pledging any asset or collateral with the bank lender.
Loan against property
When companies look for an availing loan of over Rs 50 lakh, they must opt for a loan against property. Individuals can take up this loan by providing property in the form of security. Loan against property’s repayment tenure ranges anywhere from 10 to 20 years. The applicant should mortgage the property to get the funds through a business loan. There is zero restriction on the property type, and applicants can provide it as collateral or security. It can be both commercial and residential property. Lenders usually offer a loan equaling 70 percent of the value of a property. But property provided as security requires being free from any type of litigation.
Invoice funding is best for small companies. Also called invoice discounting or invoice factoring. When businesses witness a lag between receiving payments and invoices, business loans assist in mitigating regular financial needs. A lender offers funds against the raised amount in the invoice. With the loan proceeds, the bank can offer up to 80 percent of the invoice proceeds. After the business gets the payment, the enterprise repays loans according to the agreed-upon tenure and interest rate.
It is one of the best business loans for manufacturing companies. Most of the manufacturing units need costly equipment for their regular operations. For buying this costly equipment, businesses need equipment financing. Such loan is specific where lenders take equipment and few other assets as security or collateral. As compared to the term loan, the rate of interest on machinery is usually lower.
A business can get a business overdraft just when it holds a fixed deposit with a bank. Lender factors in business repayment history, fixed deposit, cash flow and more for the loan approval. With such loan types, the borrower can easily withdraw the needed amount and pay interest just on the used amount.
Business loans for women
Few lenders and banks provide separate funding schemes for women. The aim is to encourage more women to start small and medium sized companies. Such specialized benefits involve flexible loan proceeds, discount on the rate of interest, faster loan processing etc.
Business credit card
To meet short-term needs, a business credit card is the best. It allows you to obtain cash when you are in dire need of funds. Business credit cards also provide the customers with various benefits like cash backs, credit points, insurance covers etc. The rate of interest on such kinds of financing is way higher. Thus, opting for a business credit card must be one of your last resort.
A cash advance for the merchants
With the merchant cash advance, you must obtain a capital advance on regular sales through credit and debit cards. Borrowers require to return the advance with part of their daily credit sales. This is crucial for businesses availing of this loan type to maintain adequate cash flow for their repayments. The benefit of merchant cash advance is that the borrower must pay as per their daily sales.
Selecting a business loan based on your requirement and business profile is best. Once you are aware of the distinct kinds of business loans, you can simply determine the financing type most suitable for your company venture. Business loans usually are available at a nominal and extremely attractive rate of interest with easy and flexible EMIs. Most financial institutions and banks provide business loans. The application procedure is very simple. For this, you just require visiting the official lender’s site and filling up the application form online.